Right now mortgage rates are really low — the lowest they have been in 50 years — but there are very few potential buyers actually getting those low mortgage rates or qualifying for a mortgage loan at all.
I have many eager consumers asking, “Why can’t I qualify for a mortgage right now?”
After the housing bubble burst in 2007, mortgage lenders were blamed far and wide for the fallout when evidence of industry wide no doc or minimal documentation loan practices were uncovered.
Fast forward to 2012 and the housing market has improved and is even on the upswing. However, to learn from past mistakes, the federal government as well as the mortgage lenders themselves have instituted much stricter guidelines for mortgage loan approval. Many who thought they were well qualified are being denied.
Here’s why: Tighter standards and more oversight means more documentation.
Even though demand for home loans has increased, few lenders are easing credit standards. Applicants are facing more demands to prove income, verify assets, and show steady employment. Potential buyers are needing higher down payment amounts and even then they are having a hard time getting to the closing table. Also, the entire process is taking longer (as long as 5 to 8 months) with constant documentation requests including providing pay stubs every two weeks up to and until closing.
In addition, the Consumer Financial Protection Bureau is considering more permanent mortgage servicing rules (slated for 2013) that would supersede the foreclosure fraud settlement standards and put a constant and consistent eye on the mortgage origination and servicing process. With everyone now looking over their collective shoulders in the wake of the housing crash, lenders are not taking chances on possible defaults.
Consumer spending habits